How much weighs the currency pair?

http://www.dreamstime.com/stock-photos-dollar-scale-image8951743Have you ever heard about the fact that the currency pairs (and the other tools on the market – metals, CFD, etc.) have different weights? No? Well, now you will know.

Let us see what is meant by the weight of the currency pair. Suppose we have developed a trading strategy that works on different currency pairs (a good strategy must work on different pairs). The question is: “Should we work on all pairs with the same lot or it should be changed depending on the trading pair?” If the second answer is correct how we can do that? As you probably guessed, the correct answer is the second one. Thus, if we have to sell one currency by larger lot, than the other, so the first will be called a heavy pair and the second – a light pair.

Let us consider carefully how the trading lot may depends on the working pair? Firstly, the price of one pip varies in different pairs – i.e., orders of different pairs opened with the same lot size and the same take-profit and stop-loss (in points) will bring us different profits/losses.

Secondly, different pairs have different volatility. Let us say we trade GBPCAD and AUDNZD on D1. Volatility of GBPCAD is significantly higher than volatility of AUDNZD – and therefore it is necessary to put larger stops, but also the potential profit is also higher. Our question may be resolved on the next way. In order to compare the weight of two currency pairs, we need to calculate the possible profit for each of them when prices pass the range that is equal to the average volatility of the selected time frame, and then to take their ratio.

This task may be solved by the SymbolWeight script. Download the script at the end of the article, put it inside the scripts folder (subdirectory of the data directory MQL4 / Scripts), then find it in the list of scripts and drag it at the needed timeframe of thecurrency chart. The window of script settings contains only two variables:

fig00

ReferenceSymbol – the name of the currency pair, relative to which we are going to measure the weight of our currency pair. A reasonable choice is to measure weight relatively to the most popular pair – EURUSD.

NBars – the number of bars according to which the script will calculate the average volatility.

Click OK and the script gives us the result:

fig01

In this case, we see that the weight of the USDCAD is substantially less than the weight of the reference EURUSD. This means that when trading USDCAD a lot of trading orders can be set as 1 / 0.69 = 1.44 lot of EURUSD, i.e. 44%.

It is easy to do the same with different pairs and put results to the table. The table below was compiled by script settings on D1 as a default timeframe. All the tools are divided into three parts: light pairs (weight <= 0.80), medium pairs (weight 0.80 – 1.20) and heavy pairs (weight> = 1.20).

Light currency pairs (weight <= 0.80):

fig1

Medium currency pairs (weight of 0.80 – 1.20):

fig2

Heavy currency pairs (weight> = 1.20):

fig3

You may agree the table is quite instructive. We can see that the lot size for trading on GBPJPY must be 0.70 / 1.49 = 0.47, i.e., half as much as for trading on USDCAD. And if we choose metals trade, you have to be very, very careful. The weight of metals is much heavier than in the most of currency pairs, so that the lot of trading orders should be reduced accordingly.

Download SymbolWeight:

rewriting: Hannay
27.01.2015

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